Breaking down the Coalition for App Fairness’ issues with Apple

Apple is currently embroiled in a legal battle against Epic Games over the iOS game “Fortnite,” sparked by Epic’s decision to add a third-party payment option for in-app payments. Apple responded by pulling the game from the App Store, which then triggered a lawsuit from Epic as well as a marketing campaign to mobilize “Fortnite” players against Apple.

Since then, there have been two court hearings, multiple arguments, and a framing of the disagreement by Epic that Apple is being anticompetitive in a number of ways. This includes Apple charging its usual 30% transaction fee for in-app purchases within the App Store, as well as preventing Epic from launching its own separate app marketplace on iOS.

Amid these arguments, Epic sought after potential allies to form a “coalition,” a group of firms that want Apple to change its ways. This resulted in the creation of the Coalition for App Fairness, an official-sounding group that wants to pressure Apple into making the same sort of changes Epic demands Apple to perform.

Becoming the target of a pressure group isn’t new to Apple, as it has faced accusations and demands across various subjects and parts of its business, ranging from the conditions of Chinese factories for workers to the sharing of map data.

In the case of the Coalition for App Fairness, Apple has to take on a collection of its biggest App Store and competitiveness critics, in an organization that was created barely a month after Epic’s initial suggestion.

According to the group’s website, it is an “independent nonprofit organization founded by industry-leading companies to advocate for freedom of choice and fair competition across the app ecosystem.” Its members “want every app developer to have an equal opportunity to innovate and engage in commerce, free from draconian policies, unfair taxes, or monopolistic control.”

The Coalition for App Fairness logo [Twitter]

The Coalition supposedly “represents all innovators – from startups to small developers to indie studios to first time creators.”

While that description sounds quite general and could apply to other app marketplaces, such as Google Play, the group’s arguments largely center around Apple and its App Store.

For example, the front page alone declares “Every day, Apple taxes consumers & crushes innovation,” before attacking Apple over a number of issues. It also features a mini infographic highlighting the 30% “tax on most app purchases” in the App Store, which is “500% more than the upper limit of 5% charged by other payment providers for purchases.”

There’s also mention of how Apple earns over $15 billion in revenue from the transaction fee per year, citing a report from CNBC. To further emphasize and influence users into it being a vast amount of money, the page writes out the number in full to show the number of digits Apple’s App Store revenue takes up.

The company lists a total 13 companies as its “Founding Members.” The list obviously includes Epic, but also a number of others who have complained about Apple in the past.

• Basecamp
• Blix
• Blockchain.com
• Deezer
• Epic Games
• European Publishers Council
• Match Group
• News Media Europe
• Prepear
• ProtonMail
• SkyDemon
• Spotify
• Tile

Basecamp got into an argument with Apple over App Store policies and fees, with in-app purchase requirements limiting the ability for developers to assist consumers with “exceptional customer service.” CEO Jason Fried argued in favor of freedom from Apple’s payment system in June, believing it would equate to a better consumer experience in assisting with payment issues.

Blix has sued Apple over its introduction of Sign in with Apple, under claims it copies BlueMail’s “Share Email” feature by allowing users to communicate via a public email address without revealing their private version. The company has also attempted to find more companies who underwent similar “Sherlocking” events.

Blockchain endured a removal of its iOS Bitcoin wallet app from the App Store in 2014, but it was later reinstated. At the time, CEO Nicholas Carry claimed it was due to Apple preparing to launch a competing revenues service, before declaring Apple a “gatekeeper to innovation.”

Deezer and Spotify are direct competitors against Apple Music, and have various disagreements with Apple, but primarily it centers around the App Store fees. While Spotify and Deezer subscriptions are subjected to the transaction fee, it is argued that Apple Music does not.

Spotify CEO Daniel Ek has complained about the App Store in the past.

Spotify’s disagreement with Apple has led to the European Commission launching a pair of formal investigations into alleged anticompetitive practices, with one dealing specifically with the App Store. Spotify made a formal complaint to the regulator in 2019.

The European Publishers Council and News Media Europe are likely to have joined due to publishers having major problems with how Apple handles various matters. Along with allegedly seeing few revenue benefits to the Apple News subscription, publishers have also been unhappy with settings in iOS 14 and macOS Big Sur that would automatically redirect users to the Apple News app when they click a link from a News+ publisher, bypassing the publication’s website completely, as well as other privacy-related features.

Match Group operates numerous dating services, including Tinder and OkCupid, which all offer various in-app purchasing and subscription options. It is probable that Match will want changes so it can reduce costs and increase revenues.

Prepear is a meal planner app that had its trademark application objected to by Apple, as its logo was deemed to be too close to Apple’s own. Naturally, Prepear’s logo is a pear with a leaf.

Secure email provider ProtonMail has complained about Apple’s alignment with “oppressive governments and curtailed digital freedom,” accusing it of being a monopoly that abused their market dominance. In a June blog post, the firm railed against Apple over its control, the transaction fee level, and helping to “propagate authoritarian laws globally.”

SkyDemon is a VFR flight-planning and navigation software for multiple platforms. In a Coalition press release, SkyDemon founder and managing director Tim Dawson said “When a platform imposes its own payment system on services like ours and actively prevents us from informing potential customers that they can transact with us directly, nobody wins except the platform.”

The founding members of the Coalition for App Fairness

Tile produces app-trackable accessories, which may find competition from Apple in the form of “AirTags.” It has complained to EU regulators and to a House Judiciary Committee in April about Apple’s supposed anti-competitive behavior, which stemmed from a breakdown in the relationship between the two companies in 2019, following reports of “AirTags” existence.

Apple ceased selling Tile products in stores and also poached a Tile engineer, though it is unclear if the person was hired for the development of a competing product. There are also accusations of unfairness in that Apple locked out third-party access to the U1 chip’s ultra-wide band radios, which would be used for position tracking for “AirTags.”

The vision of the Coalition for App Fairness is for companies like Apple to adopt a set of “App Store Principles” The list of ten seem to be fairly straightforward on face value, but practically all of them seem to attack Apple in some way. The issues can be broken down to covering a few problem areas.

Some of the principles attack Apple’s policies regarding exclusivity, namely the use of only the App Store and its payment mechanism for in-app purchases, and the discouragement of creating rival app marketplaces. Apple doesn’t allow for secondary app stores, or for an app store to be offered within the App Store itself, as well as forbidding the use of third-party processing for in-app purchases.

There are also digs at Apple’s own apps, where developers should have “timely access to the same interoperability interfaces and technical information as the app store owner makes available to its own developers.” Read this as wanting third-parties to have access to the same tools as internal Apple teams working on apps like Maps and Apple Music.

Furthermore, there is the suggestion for app stores and platforms to avoid engaging in “self-preferencing its own apps or services,” namely the App Store should not offer up Apple’s Maps app first when it could easily suggest Google Maps or other competitors, for example.

On this point, Apple has faced repeated claims it was favoring its own apps, though these are largely found to be inaccurate in their accusations. One investigation by the Wall Street Journal was attempted to be replicated by AppleInsider, but the results weren’t able to be duplicated.

Apple has denied App Store Search juices results in its favor, with executive Phil Schiller insisting in September 2019 there was “nothing underhanded about the algorithm.” Instead, it was claimed apps ranked higher due to their popularity and Apple’s habit of using generic names like “Maps.”

The App Store fees are also raised in the list, where developers shouldn’t be “required to pay unfair, unreasonable, or discriminatory fees or revenue shares, no be required to sell within its app anything it doesn’t wish to sell, as a condition to gain access to the app store.”

There are some common-sense items in the list of ten principles, such as app stores needing to be “transparent about their rules and policies” and to apply them consistently with a quick and fair dispute resolution process. There’s also mentions of allowing access to app stores so long as it meets standards of quality, security, and privacy, the right to communicate directly with users via the app, and that a “developer’s data should not be used to compete with the developer.”

As well as creating the smaller list, the Coalition has spelled out its position on a collection of three issues.

The first big topic for the group is its claim “The App Store is ruled by anti-competitive policies.” It accuses Apple of favoring itself by “controlling the products or features that are available to consumers,” as well as forcing vendors to “limit options,” forces developers to use the App Store, and “even steals ideas from competitors.”

To prove its point, the group uses a pair of case studies for two companies that have fallen afoul of Apple’s policies.

The first is Tile, which the group starts off by calling a “scenario that harkens back to the browser wars of the 90’s.” It first highlights how Find My is installed on all iOS devices by default, giving Tile an immediate disadvantage. Then, at the same time as enhancing the Find My app to “compete more directly with Tile,” Apple updated iOS to make it harder “for consumers to access to the location data needed for Tile to work, while leaving Find My’s streamlined data access intact.”

Apple also started to serve “disarmingly frequent prompts to Tile customers to disable Tile location data access,” though the same thing wasn’t done for Find My.

This is in reference to an app tracking alert added in iOS 13, which warned users about apps that tracked their location in the background, offering users the opportunity to change their privacy settings for location data or to leave it as it is. The notification was helpful in cutting down the amount of location data shared with marketers, ensuring privacy for users, but simultaneously it meant apps that relied on ongoing location tracking like Tile could have found that functionality disabled by users seeing the prompt.

Tile objected to notifications about location tracking in the background in iOS 13.

As to why it wasn’t shown for the Find My app, it is likely due to it explicitly warning users about location tracking when it is turned on, as well as its enhanced management of who has access to the data. Apple probably thought that was enough for Find My, especially as it didn’t hand over location data to marketers.

However, this does give Apple a perceived advantage in that it isn’t held to the same location tracking limitations as third parties like Tile. Developers have complained about this before, with it amounting to a “double standard” for Apple’s own rules and guidelines.

In August 2019, Apple emphasized that it holds apps to a “high standard for privacy, security, and content” to maintain the trust of its users, with changes made “in service to the user.”

Tile has already complained to the European Commission on the matter, accusing Apple of preparing for the release of “AirTags” by selectively disabling features of rival products.

The argument is somewhat disingenuous as there’s a world of difference between disabling a feature entirely and changing how it acts. In the case of added location tracking notification, Apple didn’t pull access to it for Tile, but laid out to the user that their location was being tracked, and gave the user the option to disable it.

While you could argue this was a weaponization of a feature against Tile, this doesn’t take into account that the same tool is being used on vast numbers of other apps that don’t really need location tracking to be on all of the time.

The case study also delves into the use of ultra-wideband chips in the iPhone 11, and possibly being used in “AirTags” to enable enhanced location tracking, but Apple is “prohibiting competing apps like Tile from using UWB.”

Apple does commonly limit access to features of its hardware to third parties, as a security precaution. For example, the Secure Enclave on an iPhone is off-limits for direct access by apps, while Apple also heavily limits what can be done with NFC, which is primarily used to power Apple Pay.

It’s certainly down to Apple whether it enables access to UWB down the line to other developers, but the locking down of the feature for now could easily be due to security concerns.

The Find My Network is also an issue for Tile, as while Apple is enabling third-party access to Find My Network data to the same extent as Apple, the Coalition focuses on requirements that the data access goes through the Find My app, and not others. This means the Tile app wouldn’t be able to access the network, but a user could feasibly see the location of a Tile accessory from the Find My app.

The Coalition reasons this will mean Apple will “own the relation” with the Tile customer, which it blusters as a move “aimed at eradicating competition at the app level.”

By every legal definition, it is Apple’s network, which it came up with and is servicing, so therefore it gets to dictate the terms of engagement for data. Providing open access to a closed or restricted network relies on the benevolence of the entity that owns said network. It’s not a government-operated network with general public access.

The second case study revolves around Amazon’s Kindle app, which allows customers to read ebooks bought from Amazon on their iOS devices, along with the Kindle ereader range and apps on other platforms. The anti-competitive accusation this time arrives by the Coalition pointing out you can read Kindle books via the iOS app, but you cannot buy them from Amazon via the app itself.

Furthermore, the app doesn’t provide any extra instructions to the users about how they can acquire the ebook in the first place. “Is this just an odd oversight by Amazon, one of the most sophisticated companies in the world? Or is there something more nefarious happening here?” the group insinuates.

Kindle books can be read from an iPhone, but not bought.

This is in reference to two parts of Apple’s App Store Review Guidelines, relating to how in-app purchases function. Apple requires developers to use the in-app purchase mechanism it supplies, but it does offer a long list of exceptions that it allows developers to use third-party payments.

The list includes retailers that offer physical goods and services outside of the app, such as Amazon’s retail app, as well as “Reader” apps, which the Kindle app would be covered by. In this latter case, Amazon is allowed to use the app to read content bought elsewhere, such as through its website via a browser, which can use any payment mechanism in existence.

Under the same 3.1.3 element of its guidelines, these reader apps and other exceptions are not allowed to inform consumers about other payment systems for in-app purchases at all, even outside the app.

On this point, it’s hard to argue Apple’s case to stop explaining that you can pay for items elsewhere, especially if it’s an app that facilitates the consumption of content bought elsewhere in the first place. Encouraging in-app purchases makes sense, but blocking what would be common sense information to users does seem mean.

And that Books app itself? It accepts industry-standard epub and PDF books with no digital rights management from anywhere, just fine.

While not a case study in its own right, the Coalition does use the end of its page on anti-competition to discuss the BlueMail situation, where Apple removed the app for alleged violations of App Store requirements. At the time, Blix sued Apple with claims it stole the idea for “Sign in with Apple,” alleged Apple had suppressed BlueMail in App Store search results, and and removed the app for violations of App Store Guideline 4.3, which covers “spam” apps that duplicate another app’s content and functionality.

Apple believed BlueMail copied features from TypeApp, developed by a company affiliated with Blix co-founder Ben Volach and voluntarily removed before BlueMail’s launch. Months later, Apple reinstated the app.

The Coalition spins this as an attempt by Apple to “outright steal developers’ ideas and make them its own,” then accused Apple of making it “part of a long and well-documented pattern of theft.” Apple co-founder Steve Jobs is also quoted as admitting “We have always been shameless about stealing great ideas.”

Blix’s BlueMail dropped off the Mac App Store for months.

“Sherlocking” is a continuing problem for developers, where Apple develops a feature for its operating systems or apps that does the same job as their app. Some developers have managed to work around the instances by coming up with new ways to offer services, but others naturally fall out of fashion when faced against Apple’s free version.

The problem on Apple’s side is that it is practically impossible to further develop its software without some element of “Sherlocking” taking place. Apple’s self-developed app and feature ecosystem is so vast, that there’s going to be points where it will develop something that will tread on another developer’s toes.

Given the sheer quantity of apps on the market, it’ll be an unavoidable problem and repeated accusation that Apple will have to deal with for quite some time.

The fees of between 15% and 30% Apple charges apps for sales in the App Store is the Coalition’s second bugbear, and it takes aim at the policy in two different ways.

The first is that it is “unfair” to developers as it “stifles developer revenue,” simply by taking a large cut of the transaction for itself. It is suggested the proportion is an “enormous portion” of a developer’s revenue, and potentially “an untenably large one.”

This is viewed as being even more unfair due to it being applied to only non-Apple apps, which puts apps at a “competitive disadvantage and thus drives up the prices for consumers.”

When Apple introduced the 30% fee, which the group repeatedly refers to as a “tax,” it did so in 2011 after three years of the App Store’s existence. It is claimed the introduction of the charge forced apps to “go completely out of business,” with online training platform Treehouse claiming Apple “just dropped a nuclear bomb on all of us.”

A graphic Apple created to celebrate the tenth anniversary of the App Store in 2018

The obligatory Steve Jobs quote is from an internal email sent a decade ago, where he told other executives “Bottom line – we didn’t have a policy and now we do, and there will be some roadkill because of it. I don’t feel guilty.”

Its second point is to the size of the transaction fee in the first place. The 30% figure is far higher than other payment service providers, the group claims, with credit card networks averaging 3%, Square charging between 2.65% and 3.4%, and the upper limit for fees reckoned to be around 5%.

There is also a quote from an “Anonymous developer” that claims it has data showing consumers dislike in-app purchases in general, instead preferring PayPal or credit cards. The 30% fee is deemed to be “insane” when compared to the single-digit charges of other payment processors.

If Apple’s 30% only covered the cost of the transaction to make a purchase, then the argument it is too high would be extremely sound to make. However, it doesn’t take into account a variety of other factors at play.

Apple’s transaction fee not only covers the cost of the transaction, but also other costs as well, including everything that went into the creation and running of the store, its maintenance, support teams, and other associated systems that cost money to run.

It’s easier to compare the Apple transaction fee to the costs of selling goods in a store. The retailer has to factor in the cost of the property, insurance, staffing, payment processing, and other elements before adding on the cost of purchasing goods in the first place.

You can add on top of that profit for Apple itself.

Taking all of these into account, it makes sense for Apple’s transaction fee to be higher than the cost of payment processing, as it covers a lot more ground. There could be an argument for reducing the amount, but that would depend on how much it actually costs Apple to run the App Store, and how much profit it wants to give up in the process.

As for why the App Store transaction fee exists in the first place, it’s simply the cost of running business. Apple needs some level of revenue coming in to cover the cost of operating the App Store at all.

It also has to take into account apps that can be downloaded but rely on in-app purchases or advertising for revenue instead of initially charging the user at the time of download. Apple could lower the fee, for apps with in-app purchases or initial download prices, but then it would have to try and recoup the cost of the completely-free apps it doesn’t earn revenue from somehow.

In the case of “Fortnite,” the game itself was free to download from the App Store, but still earned revenue via the in-app purchases for game currency. Apple still has to shoulder the cost of hosting the game in its store, including the bandwidth costs associated with users downloading the app and updates, so they have to be covered in some way, namely the cut from in-app purchases.

While Epic does lose out on some of its in-app purchase revenue, it also benefits from revenues generated for hosting promotional in-game events for major brands, a source of funds that it does not share with Apple despite it being visible within the iOS game.

The argument that the level of fees goes against antitrust laws isn’t really much of one, as such laws specifically allow licensing or distribution fees. If Apple were to have raised the cost of its cut over time, then a court could suggest there’s an anti-competitive element to it.

Since Apple instigated the fee at 30% and hasn’t moved it higher at all, the laws don’y really apply to it. Doubly so as Apple has even lowered the fee in some cases, such as charging 15% for long-term repeat subscriptions that go beyond one year in length.

Apple even offered to cut the fee in half for Amazon, to try and encourage it to bring Prime Video to the App Store in 2016. In this case, it is extremely difficult to argue that Apple was reducing competition, especially when it was effectively welcoming one of its video store rivals onto the platform.

The Coalition’s last main issue is the accusation that the App Store limits consumer freedom.

It is argued that software on other platforms be bought from anywhere and used on any supported computer and operating system combination. However, for the App Store, and similar “walled gardens,” it is described as an idea that a consumer “could only use software sold through the same manufacturer as their laptop” or mobile device.

For apps sold through Apple’s digital storefront for an iPhone or iPad, the developers have to follow the “rules, taxes, and requirements of Apple,” but consumers would still be able to buy software through other means for a computer where the same rules don’t apply.

To the Coalition, this is a “crazy house of cards.” To anyone with any experience in gaming, the most prevalent example of “walled gardens” this is quite normal.

If you were the developer of a game intended for play on a game console, such as Microsoft’s Xbox systems or Sony’s PlayStation line, you have to agree to create games based on their own respective developer guidelines. This includes not only making sure the game abides by specific rules, such as localization requirements, security, and how the game handles user data, but also being included in the console’s respective digital storefront.

Want a game you made for PlayStation 4 listed in Sony’s online store? It has to abide by guidelines Sony creates, allow Sony to handle transactions for the initial purchase and downloadable content, and so on. This is the same for Xbox, Nintendo’s Switch, and previous generations of consoles — and neither Epic nor any coalition participant are suing Microsoft, Nintendo, or Sony.

There’s also no alternative on consoles. If you want to sell a digital copy of your game on a PlayStation, your only choice is to go through Sony, as it’s the only storefront that will work with it, similar to the App Store and iOS.

Indeed, it’s arguable that the concept of a walled garden for gaming existed long before digital storefronts were a thing. In the early days of disc-based console gaming and cartridges, you had an effective “walled garden” for content without Internet access, one where developers had to work with console makers to create the media playable on consoles in the first place.

Of course, the console producers also took a chunk of revenue from the sale of these physical media games, for using their proprietary formats and technology.

You could argue that you could buy codes online to download content from each of the stores, so you’re making the actual purchase from a different retailer and using a different transaction mechanism than Sony or Microsoft’s stores, but each company will still earn money from the transaction in the end, as they will still take a cut of the purchase. Arguably, this is the same as buying an iTunes gift card from a retailer, as again Apple will profit from the transaction in the end.

On PC, a platform that Epic also functions within, you can download games from one digital storefront, or the developer directly, and apply aftermarket downloadable content purchases without too much trouble. This is pretty much what Epic would want, but that ignores the activities of the console gaming industry.

A screenshot of Epic’s ‘Fortnite’ showing an alternative payment option.

The example given this time is the “Fortnite” saga itself, where Epic added a second payment mechanism to the iOS version of the game, disobeying the App Store guidelines. Epic’s payment option allowed players to buy in-game currency for $7.99 instead of paying $9.99 via the App Store’s mechanism.

There’s a reference back to the “arbitrary app tax” applied to the purchase by Apple, without mentioning that Epic would be shouldering the cost of the transaction instead of Apple for its lower-priced alternative payment system. The group tacks on the issue of Epic not being allowed to say there’s an alternative non-Apple transaction system they could have used, one that they wouldn’t have been allowed to use anyway because of App Store guidelines.

As an aside,attempts by Epic in the courtroom to paint Apple as violating antitrust laws puts the line down as affecting Apple’s users in general, wheres Apple and antitrust law instead draws the line as “smartphone users” instead.

During litigation in its second hearing, Epic claimed the 30% fee taken by console producers was fundamentally different than Apple, despite consoles effectively consisting of a walled garden market with no competition on the same platform. Epic also pressed that iPhone gaming was different from console gaming due to the iPhone being portable and playable on a bus, while also completely ignoring the existence of portable hand-held consoles such as the Nintendo Switch.

The Coalition then goes for an analogy to explain what’s going on, via the medium of a coupon for Cheerios cereal being used at Kroger by a consumer. It reckons Apple is doing the equivalent of Kroger telling Cheerios they aren’t allowed to offer coupons, and risk being thrown out of the store’s cereal aisle if they do.

The analogy falls flat as it’s not the same as giving a coupon to a consumer. In the analogy, if Kroger accepted the coupon, it would still have to handle the costs associated with the transaction and having the cereal on standby, and would have to apply to the cereal producer for the value of the coupon.

You cannot transpose Epic and Apple into the same analogy, as Epic wasn’t offering a coupon, it was offering an entirely separate payment system that was cheaper to consumers than the same purchase via Apple. They were actively diverting custom away from Apple’s in-app purchase mechanism to its own.

To correct the analogy, it would be the equivalent of Cheerios walking into a Kroger and, secretly, putting a sticker on the shelf next to the cereal telling consumers the same box can be bought from a stand in the car park at a cheaper cost.

Like the manager at that hypothetical Kroger, Apple wasn’t too keen on what transpired.

Regardless of whether it’s a Kroger, WalMart, Amazon, or app store like Apple’s, Microsoft’s, Sony’s, or even Epic’s, there are always rules and guidelines that you have to abide by if you want to be included. If you go against the grain, expect the store manager to throw you out.